Altisource Residential's (RESI) CEO George Ellison on Q2 2017 Results - Earnings Call Transcript

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About: Front Yard Residential Corporation (RESI)
by: SA Transcripts

Altisource Residential Corporation (NYSE:RESI) Q2 2017 Earnings Conference Call August 8, 2017 8:30 AM ET

Executives

Robin Lowe - Chief Financial Officer

George Ellison - Chief Executive Officer

Analysts

Anthony Paolone - J.P. Morgan

Jade Rahmani - KBW

Doug Arthur - Credit Suisse

Mike Grondahl - Northland Securities

Fred Small - Compass Point

Ryan Tomasello - KBW

Operator

Good day, ladies and gentlemen. And welcome to the Altisource Residential’s Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference is being recorded.

I would now like to introduce host for your today’s conference, Robin Lowe, CFO. Sir, you may begin.

Robin Lowe

Thank you Gigi [ph]. Good morning, everyone, and thank you for joining us today. My name is Robin Lowe, and I’m the Chief Financial Officer of Altisource Residential Corporation, which we refer to as RESI.

Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, please log on to our Web site at www.altisourceresi.com. These slides provide additional information investors may find useful.

As indicated on Slide 1, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor Provisions of the Federal Securities Laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology that may involve risks and uncertainties that could cause the Company’s actual results to differ materially from the results discussed in the forward-looking statements.

For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statements in our earnings release, as well as the Company’s filings with the Securities and Exchange Commission, including our year-end December 31, 2016, Form 10-K, our first quarter 2017 Form 10-Q and our second quarter 2017 Form-10-Q that we have filed today. If you would like to receive our news releases, SEC filings, and other materials via email, please register on the shareholders page of our Web site using the e-mail alerts button.

Joining me for today’s presentation is George Ellison, Chief Executive Officer of RESI. I’d now like to turn the call over to George.

George Ellison

Thanks, Robin, and good morning, everyone. The team at RESI is pleased to report another quarter of progress and success at executing on our stated goals, growing our portfolio of high-yielding single family rental homes, achieving first-class rental operating metrics, and disposing of legacy assets.

As you see on Page 3, we’ve closed another stage of our most recent Amherst acquisition that now takes us over 10,000 rental homes, a tremendous milestone. As stated previously, we anticipate closing on approximately 2,000 additional stabilized rental homes from the same transaction with Amherst this year. In addition to growing our portfolio, we continue to maintain our focus on hitting excellent operating metrics. Occupancy stayed high at 95%. Stabilized rental NOI margin increased to 62% recorded. And stabilized rental core FFO increased to $0.12 per share. As stated on several prior calls, we projected $0.15 of core FFO per quarter, $0.60 annually when we reached 10,000 stabilized rental home. Again, we’re right on schedule to reach another important milestone that we set and anticipate reaching this goal by year end.

On our previous call, we announced that our last large NPL sales of around 2,100 homes - 2,100 loans was about to close. That transaction has been successfully executed. All that remains is a cleanup sale of several hundred loans that should be in the market in the next week or so and should close later this year. We maintained our dividend at $0.15 per share for the sixth quarter in a row and continued with stock buybacks. At quarter end, 67% of debt funding now has a maturity of over four years. All in all, another very successful quarter.

Now let’s turn to Page 4 and get into the details. Rental revenue increase 18% from last quarter. This was mainly the result of the 750 homes that we purchased at the end of the first quarter and are now fully reflective in the second quarter’s results. Keep in mind we closed another 750 homes at the end of the second quarter, as well. So the cash flow from these will be apparent in our third quarter numbers. Stabilized rental core FFO increased to $0.12 per share, which again does not include the operating metrics for the 750 homes we purchased at the end of June, which we believe will be accretive to the $0.12 of core FFO as we move through the third quarter.

We repurchased just under 200,000 shares for approximately $2.7 million, which now takes us slightly over $15 million of share buybacks since we initiated the repurchase plan in the fall of 2015, again a dividend of $0.15 per share was declared and paid.

For some portfolios detail. The total rental portfolio ended the second quarter at 10,053 homes, of which 97% are now stabilized. Leased homes increased to 9,221, a 10% increase from the first quarter. As mentioned, we closed the second stage of our most recent Amherst transaction, another 750 homes just as we did in the first quarter. This transaction now takes us over 10,000 rental homes. We are targeting the purchase of up to another 2,000 stabilized homes in the Amherst transaction by year-end.

On our first quarter call, we announced that our last major NPL sale would close shortly after the earnings call. As I said, it did in deed close during the following week. The final price after the buyers due diligence process came in 3% below our estimate, and this difference caused about $10 million reduction in our GAAP earnings number. Although we are disappointed in this outcome, the more important news, actually the great news is that our legacy NPL business is finally behind us. All that remains, as I mentioned, is a small clean up sale of several hundred loans that will be in the market next week or so and is scheduled to close later this year. No material financial impact either positive or negative is anticipated with this clean up trade.

On the REO disposition front, we again had strong sales of 522 homes. This is about a 26% increase over last quarter. April through September are the peak selling months and we’d anticipate a another strong number of REO sales this quarter in the same range as the second quarter. The remaining REO count stands at 1,338, a reduction of 24% from last quarter. We are still on track to almost be completely out of the REO by year-end 2017.

On the operations front, stabilized rental portfolio NOI margin increased to 62% in the second quarter. Occupancy this quarter was steady with 95% of stabilized rental leased at quarter end. Our lease renewal rate for the quarter was 69%, with a turnover rate at 8%; rents on renewals increased by 4%, and re-leases about the same amount.

On the funding front, Rob and his team continue to keep this in a excellent liquidity position and are doing a great job pushing out the duration of our debt maturities. As stated previously, 67% of our debt facilities now have maturities of four years or more.

On Page 5, you see a simple representation of the milestones RESI has hit just over the last 2.5 years. First, from 300 plus rented homes at the end of 2014 to over 10,000 today. Second, a quarterly target of $0.15 per share, our core FFO was set in the second quarter 2016 earnings call. And this goal will soon be reached. Last, NOI, which first registered its 56%, is now 62% with a goal of 65% when we’re fully stabilized. All in all, an enormous transformation of this company in a very short period of time.

Continuing this growth shown here, remains a key objective of RESI. On last quarter’s call, we announced that we would be working to develop multiple SFR our originators who will feed stabilized rental homes into our portfolio. Our hope is that once the most recent Amherst trade is completed, they will continue to be one of our key SFR originators. I’m pleased to announce that in addition to Amherst, we are in negotiations with three separate regional originators to provide us with SFR flow. As we work on these pilots to buy homes around the country throughout 2017, our goal is to grow the number of originators, feeding stabilized rental homes into RESI, as well as begin to show a forward pipeline of calendar of the purchases from this growing network. This is where our growth is coming from now. And this where the next 5,000 to 10,000 homes will come from in the future. Again, growth remains a key focus of our team.

On Page 6, you see our current leasing score card. Turnover crept up a bit this quarter to 8% due to the after leasing season, but both renewal and re-release rental increases were strong at 4% and the renewal rates stay steady at 69%.

And I’ll now turn the call back to Rob.

Robin Lowe

Thank you George. Today we’re seeing a GAAP net loss of $55.7 million in the second quarter of 2017. Rental revenues increased 18% over the prior quarter, to $30.1 million, reflecting the continuing growth in leased homes as we crossed the milestones of 10,000 homes in our rental portfolio.

Total revenues for the quarter of $13.4 million, reflect the continued disposition of legacy assets as we closed the of 2,104 mortgage loans and 522 non-rental OREOs in the quarter. These disposition realized cash proceeds after associated debt paydown of approximately $147 million.

At the end of the second quarter 2017, there were 442 mortgage loans remaining on our balance sheet at a value of approximately $68 million. We expect to agree the sale of these remaining loans during the third quarter 2017 and close in the fourth quarter.

At the end of the second quarter 2017, there were 1,338 non-rental OREOs held for sale or under evaluation for rental or sale. We expect the result of substantial majority of these OREOs by the year end, either through sale rental conversion.

Expenses for the second quarter was $69.1 million a $0.12 reduction, compared to the prior quarter. As we continue the disposition of legacy assets, we expect to see significant reductions in certain expense lines. For example, mortgage loan servicing cost struck 58% over the last quarter, with a disposition of the 2,104 mortgage loans. And we expect a further reduction and an eventual elimination of this expense as we dispose the remaining loans. Likewise, as we continue the disposition of non-rental OREOs we expect to see a reduction in average property operating cost as non-rental OREOs are more expensive to maintain than our rental homes. 88% of the properties are now in the rental portfolio, compared to 84% last quarter and we expect this to trend towards 100% as complete the disposition of non-rental OREOs.

Selling costs and impairment also reduced significantly once we closed out the non-rental OREO inventory. This quarter, selling costs and impairment were 36% or $5.1 million lower than the prior quarter.

Core FFO on the stabilized portfolio was $0.12, up from $0.11 last quarter. And NOI was 62%, up 1% over the last quarter. With stabilized occupancy at 95%, we continue to demonstrate strong and improving operating metrics that will key to generating shareholder returns going forward.

As shown on Slide 7, at the end of the quarter, we held a total of 11,391 properties of which 10,053 were in the rental portfolio and 612 were held for sale. The remaining 726 were under evaluation for rental sale. The total number of OREOs under evaluation held for sale reduced by 24% compared to the prior quarter.

As shown on Slide 8, our loan and OREO disposition plans remains on track. 522 OREOs were sold in our second quarter, making 923 sold in the first six months of this year. And mortgage loans held at fair value reduced to zero, as the 442 remaining loans were classified as held for sale.

With regard to liquidity and funding capacity, on Slide 9, we had approximately $162 million of cash and cash equivalents at the end of the quarter, and about $321 million of unused funding capacity, for a total of $483 million of available financing. This excludes additional seller financing under the Amherst agreement.

In early April, we closed on a $100 million five-year, 5% fixed rate loan with a new accounts party, American Money Management, and renewed the Nomura loan agreement with a maximum borrowing capacity of $250 million.

Additionally, in connection with the purchase of 751 homes from Amherst at the end of the second quarter, we added $87.8 million of five-year seller financing at one-month LIBOR plus 230 basis points, 45 basis points lower than the spread of Amherst transaction we financed in the first quarter of 2017, with the same 75% advance rate. We expect to add further seller financing on similar terms as we continue to acquire more homes from Amherst under the recent agreement to purchase up to 3,500 homes. We continue to work on extending finance duration and at the end of the second quarter 67% of our debt funding had a term of four years or longer.

I’ll now turn the call back over to George.

George Ellison

Thank you Rob. Just as last quarter, occupancy is up, rental revenue is up number of homes rented is up. Operating metrics improve significantly. Turnover remains low, legacy business is almost gone. We closed another material portion of the Amherst trade, pilots for several regional flow programs have been initiated, our available funding and liquidity remains very high and we remain on target to hit annualized core FFO of $0.60 by year end. Another excellent quarter at RESI.

As I said on last quarter’s call, as the legacy business face into the rearview mirror, we look ahead to a simple, pure play single-family rental story, focused on high yield affordable housing for working-class Americans. On that call I said that our two remaining objectives were growth and operational excellence. Our results show that we are delivering on these goals. But there is much work still to do. We need to continue to build origination machine. It needs to be large, sustainable and focused on every region we want to be in. Growth is key. The job of the teaming operational excellence, shown our key metrics is never done. Pushing NOI, core FFO and occupancy so that we can eventually raise the dividend, are tasks upon which our entire team is supremely focused.

We commit to work on these goals every single day. We look forward to discussing our company with all of you, and answering any questions you may have. I’ll now turn it back to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Anthony Paolone from J.P. Morgan. Your line is now open.

Anthony Paolone

Thanks and good morning. First question, I just want to check something, when I look at your cash flow statement in the Q, it seems to suggest that real estate investments in the quarter were about $32 million, $33 million, but you bought, I think, 751 homes from Amherst. It just doesn’t seem to tie. What was the purchase price, like how much was spent in the quarter on acquisitions?

George Ellison

That’s about right, Tony, because remember we’re getting 75% seller financing on those homes. So that number’s about right, I think.

Anthony Paolone

Okay so it only shows that the net equity it’s not a gross?

George Ellison

That’s right.

Anthony Paolone

I see, okay. And then the last couple quarters seems like you’ve been running, I don’t know, give or take $10 million or so on renovations. Given that a lot of the homes that are coming in are pretty stabilized, what exactly are you spending money on? At this point, what needs to be renovated in the portfolio when these things come in?

George Ellison

Yes, I guess there are a couple of things there. You’re right, the new homes, we’re buying stabilized. We still have some legacy portfolio that we bought, some of the initial pools as they come out of - we bought them leased. And so, when the lease terminates and the tenants move out, we’ll go into those properties and assess them for any renovation work that needs to be done. And so really what you’re seeing is expenditure on those properties. You’re right the new properties are really coming to us stabilized now.

Anthony Paolone

So is there - give us sense as to kind of what that number looks like over time as you kind of turn them and then I guess bring them up to a level that you guys feel comfortable with, like is that sort of the pace of spend or does that come down, or how does that go?

Robin Lowe

Yes obviously over time, as I say the new strategy is to buy stabilized homes, so over time, you're going to expect those delay rehab, as we call them to sort of go down. So that should trend down as we go forward.

Anthony Paolone

Okay. And then do you have a goal for what you think your yearend home count will be?

George Ellison

It really depends on, as I said we’re working on a few pilots. I don’t think those will be material, maybe could be fifty to hundred may be a couple get warmed up, could be a couple of hundred, but I don’t think it’ll move the needle. The real driver will be the Amherst transaction, which is scheduled to close later this year. We have up to 3,500 was the deal, and we closed 1,500, so you would hope we get as close to that 2,000 as we can, but I’m not sure I’d model that, but hopefully 1,000, 1,500 maybe we can press it a little hard.

Anthony Paolone

Okay. And then just last question what does the buy box look like now as it relates to geography, price points, et cetera?

George Ellison

Rob you may want to come in behind me on this. I think the price point is - it jumps around a little bit. If you remember the Invitation Homes trade in 2015 that was probably one of the lower price points, and I think it was about $85,000 per home. First, Amherst were like $150,000 something, and the second one on $135,000, so it jumps around a bit. But I’d say the average or the buy box is still give or take $125,000, $130,000 somewhere right round there.

Location, we continue to grow, I mean, we’ve opened up so many cities in the last year or so, so it’s really just building out as you know - you want to have 500 to 1,000 in every city you’re in. So we add some cities. We spend a lot of time on St. Louis, one of the SFR originators I talk about hopefully can get us in that part of the country. Kansas City looks a little bit more challenged, but we like both those places, huge populations, 2 million or 3 million in the MSA. So we’re spending time looking at new places like that Tony. And then just continuing to build out everywhere we’re at. So we have 500, to 1,000, 2,000 in every city.

Anthony Paolone

Okay. So we shouldn’t take the like when you share your presentation like on Page 6, the point there is not that those are necessarily your ten target markets, you’re just some arbitrarily showing your top ten and then putting everything else in other, is that…?

George Ellison

Yes, that’s correct. That was top ten we wanted you to see, so we’ll be building out all of those. Obviously, Atlanta is pretty big already. But you want a thousand the entire way down that list.

Anthony Paolone

Okay, got it. Thank you.

George Ellison

Thank you.

Operator

Thank you. And our next question comes from the Jade Rahmani from KBW. Your line is now open.

Jade Rahmani

Thanks very much. I was wondering if you could give an NAV update.

Robin Lowe

Yes Jade, in the last call we said our NAV was around 19 and I think that still holds true. Obviously, everyone has a slightly different way to calculate that, but big picture, we still estimate our NAV at about 19.

Jade Rahmani

And what’s the Cap rate assumption that you’re making?

Robin Lowe

5.25%.

Jade Rahmani

What cap rate do you think the homes are acquiring to trade at, or I guess said differently, what cap rate are you acquiring homes at from Main Street Renewal and the other folks?

Robin Lowe

We target 6% Jade.

Jade Rahmani

Okay. The homes at the other three SFR originators are going to be providing who will be doing the property management on those?

George Ellison

ASPS.

Jade Rahmani

Okay. I guess could you give any color on how Main Street determines which assets are going to RESI, as opposed to other vehicles that they may have?

George Ellison

In terms of their new production, I am not sure - we have them - I have to speak to those guys to find exactly how much they’re producing away from us. I think we have them pretty much running full stop for us. We pressed them for 750 and another 750 obviously as Tony just mentioned, or asked, we’re trying to push in as hard as we can to get another 1,000 up to 2,000. So I’m not sure how much they are producing for other funds or other customers, they just. I think they might have another channel that’s higher-end homes. I’m not as familiar with that. So I’ll have to check exactly how much is away from us, but I can imagine there’s much more production at least for this order in our price point away from us.

Jade Rahmani

And order of magnitude, how much do you think you could acquire from the other three parties?

George Ellison

It’s little early to tell. As you know we shifted a little bit to buying to just stabilize homes, to get the risk down. Although we may consider going back to buying further up the food chain. But right now we are very comfortable buying stabilized homes. That puts an enormous amount of pressure on the seller. So they know what we’ll buy, but they have to go find their house, pick the house, list the house, rent the house and then and only then will we buy it. And so that’s the huge shifting of risk, obviously you’ll have to pay a little bit more, but we want to get the risk at least initially back on to the sellers, the providers.

So MSR has been doing that for five years. The ASPS is working hard to look to several pilots for them, as well. It’s a little bit of a different model for them. And so, as I said, it puts pressure back on the seller. And so people go very, very carefully because they could end up long a home that doesn’t fit us, doesn’t hit our yield and we don’t buy. And obviously we’re pretty capital rich, a lot of people, as you can imagine are not. So we’re going very, very slow. I mean literally tens, and twenties and thirties. And so that’s really what this year was about trying to build those pipes. As we get to the end of the year, I think, we’ll be able to put some numbers for you on that question as to what to expect from Amherst and handful of others.

Jade Rahmani

And in terms of ASPS, do you still have confidence that they have the scale to manage properties in these markets have you pre-identified, you mentioned St. Louis, have you pre-identified the markets where ASPS has the scale to manage properties that have led you to those places?

George Ellison

Well the answer for the first question is absolutely. The mechanics of the question are a little bit different than the way you chose it. Which are we strategize Randall Mason in the team strategize with ASPS in advance to build out places where we want to go. So they are already built up in 10 or 15 cities. But so, for example, to stay with the St. Louis hypo-well actually, it’s actually not a hypo, to the start with the St. Louis issue we worked with them for months on gearing up in St. Louis. And so yes I’m highly confident they can get there and they continue to grow on cities where we want to go.

Jade Rahmani

Just on the real estate, the expense you said should moderate once you are out of the legacy assets. Anything in the residential property operating expenses? I think those also include OREO costs?

Robin Lowe

That’s right, we do. So they’re all in there whether it’s OREO or a rental, so that’s kind of my point there Jade, that as that mix changes, and I said I we’re kind of 88% this quarter from 84% last quarter. But an OREO costs something like three times as much to maintain as a rental property, so as that mix changes, you should see the cost of property if you like come down.

Jade Rahmani

I guess and millions for a quarter annually do you know how much you’ve been spending on the OREO property preservation costs that which costs should go away by the end of the year?

Robin Lowe

Yes I don’t have that number in hand Jade. We don’t disclose it.

Jade Rahmani

Okay. And then aside from that it’s the selling costs and impairments should also go away, and mortgage loan servicing costs?

Robin Lowe

That’s right exactly.

Jade Rahmani

Okay that’s helpful. Any color on where property management is running as a percentage of revenues?

Robin Lowe

We have slightly different agreements with each of the property mangers. One has a higher headline rate, versus the other one sort of a lower headline rate, but sort of more ancillary cost. But I think we sort of run sort of market average percentage by percent as a percentage of revenue, something like that.

Jade Rahmani

[Indiscernible] That includes leasing cost? [Indiscernible]

Robin Lowe

Sorry go ahead.

Jade Rahmani

I was going to say if I take the property management line in the SFR slide, divided by rental revenues it’s about 6.25%.

Robin Lowe

That’s right. That’s right I was adding in the leasing cost when I give you the number, I want to give you the total number.

Jade Rahmani

And lastly, what are your assumptions for property for - could you separately identify your assumptions for RNM turnover costs and CapEx per property, per year?

Robin Lowe

We have some - there’s a slide in the deck which kind of breaks that out. It’s Slide 13, which kind of breaks out taxes, insurance, HOA as maintenance and turn property management, that’s what we’re disclosing right now.

Jade Rahmani

Okay, I mean those numbers annualized seem pretty low. I think they are around 1,400 or so per property annualized. So maybe I’ll follow-up with you offline. I guess CapEx what do you expect?

Robin Lowe

CapEx, we’re budgeting right now about a $1,000 but we think we can get that down over time. So you asked your last question, maybe I slightly misunderstood, but we’re thinking that RNM is probably running right now as $1,000 to $1,100, something like that. And then the turn costs are about $300 annualized.

Jade Rahmani

$300 annualized.

Robin Lowe

Yes.

Jade Rahmani

So $300 annualized and what are your assumptions for turnover rate?

Robin Lowe

Yes three to four years. That $300 is based on three years.

Jade Rahmani

So that’s $1,000 per turn?

Robin Lowe

$900, yes.

Jade Rahmani

Okay, that also seems pretty low to me. Great, well thank you so much.

Robin Lowe

That’s correct.

Jade Rahmani

Thank you guys for making a lot of progress.

Robin Lowe

Thanks Jade.

George Ellison

Thanks Jade, I mean that’s our experience so far. Those numbers are based on actual experience so far.

Jade Rahmani

Okay.

Robin Lowe

Thanks Jade.

Operator

Thank you. And our next question comes from Doug Arthur from Credit Suisse. Your line is now open.

Doug Arthur

Thanks. Can you talk about where the realization of OREO sales has come in relative to your expectations and kind of what you have modeled into your NAV assumptions?

George Ellison

Yes, so I think we’re on track. Basically when we did disclose NAV a couple of courses ago, I think, and in our calculations today we said we take kind of a 10% of haircut on the current value of what we got on our balance sheet. And I think we’re coming in broadly in line with that. So that’s really where we are on the valuation and in terms of just volume. Again as I said we believe we’re kind of on track to be largely out of the OREOs by the end of the year. I mean it’s probably going to be a couple of hundred less if no other reason than some of the ones that we foreclosed on, it does take awhile to get sort of access to those properties, there are seller, what do you call it, redemption rights and all sorts of other sort of access issues, which can take a few months.

So just for that fact if nothing else, there maybe a couple of hundred or so less at the end of the year, but we do expect to be broadly out of most of them.

Doug Arthur

And can you just - I would imagine the easier OREOs to sell are kind of the ones, is there any kind of risk that kind of the ones that you’re still with are going to prove more possibly to sell, or just how should we get comfort in that?

George Ellison

Yes, I wouldn’t say particularly skewed in any respect. We do have a call actually every Friday morning to look at properties which have been around for a long time that we want to sell. And we focus on getting those out of the door as quickly as we can. So I would say that the remaining OREO portfolio that we intend to sell is not skewed in any way towards sort of worst properties or anything like that. I would think a study is representative of the portfolio that we’ve always had.

Doug Arthur

Thank you.

George Ellison

Thanks Doug.

Operator

Thank you. And our next question comes from Mike Grondahl from Northland Securities. Your line is now open.

Mike Grondahl

Yes thanks guys for taking my questions. The first one the couple pilots you’re doing for SFR acquisitions of the stabilized properties, what kind of capacity do those companies have you’re working with? I mean can they ramp up to sort of Main Street size or kind of what are you thinking there as you look out a little bit?

George Ellison

Well as I said, Main Street, this has a business for probably five years now. And so they had a jump on everybody, I think ASPs will be the first to catch them. And so we have high hopes for those guys. The other people are more regional, Michael, so I think more regional Michael. So I think it depends to the answer the one of the southeast used to be a supplier for one of the - or one of the suppliers for a large SFR company.

So I’m confident they can do pretty decent size may be not quite as big as MSR. But as I said on one of the previous questions, right now they are pilots, small, I wouldn’t model this yet. We’ll let you know when we think we have somebody signed up. What we’re really trying to do, as I said, is make sure everybody understands the risks they’re taking.

What we’re learning is that people are very, very strong in regions, Mike. Somebody strong in Texas, in Missouri, in Oklahoma and places like that. And somebody in strong in Midwest as you can imagine, and so on. So the way I think it plays out is you have three or four regional relationships and hopefully each of those can give you hundreds, maybe a thousand and in the odd case somebody can give you more than that, there will be grades.

So little early to give you numbers to model it. But soon as we start to get some visibility into that, obviously we’ll brag about it.

Mike Grondahl

Got it, okay. And then on Page 6, Oklahoma seems it’s a small market, but it’s been a more challenging market. Do you think that’s bottoming or beginning to turn or is it still kind of getting challenging there?

George Ellison

Yes that’s great question. When we were putting the slides together we saw that and said people may ask about Oklahoma City. So what I’d say about Oklahoma City is that a couple of things. It tends to be, on the negative side, there’s a few other large players there and so it might have a little bit of supply pressure, but we are very, very positive on that MSA. And we’d like everything we see there from growth in population and wages. We’re very, very positive about a lot of the new businesses that’s opening up there. So it’s a little bumpy now. One of our property managers actually changed some personnel there that compressed it a little bit more. So we’re focused on it.

What you see here on this table we’re not - change you put it out there, we need to do better in Oklahoma City, but we are very confident that it’ll catch up over the next few quarters.

Mike Grondahl

And then any other markets that you’re kind of keeping an eye on that are maybe weaker than expected?

George Ellison

If you read some of these securitization reports, for example, the Morningstar report, they point out across the country three cities or four cities that are struggling. And we’re pretty consistent with that. We compare ourselves, obviously, to everybody in the industry. So you’ll see a little bumpiness in Tampa and other parts of Florida, but net-net, you got to be there. You’ve got to be where the population is. And Huston gets a little bumpy from time to time, Oklahoma City we just talked about. Indie was a little bumpy. But, you know, Randall Mason and his team sit on top of every single city pretty much every day, I monitor it every single week and have a call - individual calls with both property managers. So it kind of goes up and down. But those are some of the probably low lights.

But as I said, if you look at the most recent Morningstar report, I think, everybody is experiencing similar trends in the same cities.

Mike Grondahl

Got it, okay. Thanks a lot.

George Ellison

Thank you, Michael.

Operator

Thank you. And our next question comes from Fred Small from Compass Point. Your line is now open.

Fred Small

Good morning. Thanks. Just on Slide - back on Slide 9, when you talk about available financing capacity, how much of this are you comfortable utilizing and what’s longer-term leverage goal?

George Ellison

Well - go ahead Rob.

Robin Lowe

We just put the slide on Fred to show financing available to us today. Fred I can tell you in conversation with our key lenders, we have a lot more leverage available to us. If we want to - obviously we’re very conscious of sort of not being too high in leverage, but while the company has a growth phase, we’ll probably be, I would say, mid-60s, something like that in the near-term. But as time goes on obviously we’ll keep track of that and kind of monitor it. The other thing I would say is-sorry, I completely lost my train of thought.

George Ellison

[Indiscernible]

Robin Lowe

Oh, this is what I was going to say. The other thing I was going to say is that, as we said, we’re very focused on terming out the debt. So leverage is one thing, but as long as you can term out the debt and now 67% of our debt is over four years we can manage that. So that’s really optimistic in the near-term, probably in the longer-term maybe coming down, but the important thing is that we’re terming out that debt.

Fred Small

Would you still look at doing some kind of securitization or can you not do that with a lot of the assets kind of financing on them?

Robin Lowe

Yes we certainly look at securitization, in fact, I think, at some point we’re going to have to do that.

George Ellison

Well we’re going to fair on the other side of the Amherst trade.

Fred Small

Right.

George Ellison

The first one was a securitization that they put into the market literally within days or weeks after the first trade settled in the fall of last year. And the bucket that they’re filling up right now will be financed with the securitization, you can track those. And then eventually we got to get ASP as we started that process. Hopefully next year we can get ASP to do the same of type of transaction.

Fred Small

Alright. Okay got it. And then I missed a little bit earlier on the call the $0.60 annualized core FFO, you said that was by year end, what’s the expected home count underlying that? Does that include the additional 2,000 homes that potentially are the remainder of Amherst? Or can you hit with a little over ten that you have now?

George Ellison

It’s the latter. Maybe you - I said it in my comments we closed these trades at the end of the quarter. So announced a trade at the end of March, but there’s no cash flow in that quarter. It comes all in the second quarter. And so what I’ve said in my comments because we closed 750, again another 750 at the end of the second quarter. So you’re 12 and change now. So obviously you got hit on a couple of metrics, but the goal is to - the promise was 10,000 stabilized homes give or take. And I don’t mean thousands give or take.

So 10,000 is still the goal, but you need to be stabilized, we just thought that they are stabilized. So you would imagine, again I don’t want to speak for Rob, but you would imagine that goes up obviously the same amount in the third quarter and then you do another closing into the fourth quarter. So that’s sort of I think will probably with the 750 that we have been very, very close to the 15,000 and then times four with what we have already announced.

I mean it might be slightly over 10,000, but we should be able to hit it, sans adding thousands more from Amherst.

Fred Small

Okay, great. Thanks for the clarification. And then how much more book value attrition do you expect as you work through the remaining legacy NPLs and OREO?

Robin Lowe

Yes, I mean, there’s always going to be some book value attrition just you see depreciation Fred as every REIT experiences with most REITs. The key is obviously to just get rid of the legacy assets which are the drag on a GAAP basis. We’re closing in on that. We’re almost out of the mortgage loans and maybe there’s going to be a couple of hundred REOs by the year-end. So that drag should largely go away by the end of the year.

Fred Small

So just to clarify on the remaining REO at year end, has that been no longer - what’s a couple hundred? I mean, I guess, the guidance was to be zeroed out there. Is that more NPLs coming? Is that sort of more new non-rental REOs flowing in from the NPL bucket, or is this just a piece of it you think it’s going to be harder to sell?

George Ellison

It’s actually neither of those things. It’s the REOs that we already have. We may not yet have access to because of various obligatory rights [ph] before we can actually take possession of that property and action resolution. So there’s sale ratification and redemption rights, which in some states can actually be as long as a year; most are not that long, but that’s really the reason it’s more than operational thing rather than our ability to actually get them and assess them and then put them up for sale that will lead us to probably have a few left at the year-end.

Fred Small

Okay and you that’s like possibly 200 or 400?

George Ellison

Our guess it’s around 200, I mean…

Robin Lowe

Into, what, year-end?

George Ellison

Yeah something like that.

Robin Lowe

I mean it all depends on how - this quarter is the big one where we’ve pressed for 500 to 600 in the second quarter we got it. We’re putting the same kind of demands on people again than what we’ll get, but again as I said on my comments, the third quarter hopefully will look like the second, so that’s another big chunk. And then it starts to slow down in the fall, so they will probably go back to 300, 400. So maybe its 200, 250, but it’s - what we keep trying to point out the people is what’s left can’t move the needle that’s the important thing. So by year-end whatever is left, it won’t be enough just like this small loan sale. It’s over half RPLs and RPLs are very, very hot right now. So we don’t anticipate any problem with this tiny sale of loans. And if there’s a few hundred REOs left in the first quarter, it’s not going to be a big deal.

Fred Small

Okay, got it. And then last one on the REO, when you talk about before taking the 10% haircut, which I know you talked about before. That’s pre-moving the property or that’s when the property is moving to the TRS, that’s not after it’s in the TRS taking another 10% haircut, right.

George Ellison

Right, right, right I’m really just applying 10% across the board just as an average.

Fred Small

Okay, got it. Thanks.

Robin Lowe

Thanks, Fred.

George Ellison

Thanks, Fred.

Operator

Thank you. And our next question is a follow up from Jade Rahmani from KBW. Your line is now open.

Ryan Tomasello

Good morning. This is actually Ryan Tomasello in for Jade. Thanks for taking the follow-up. Just on the M&A front, can you say if you’re active there, if you’re either looking at bulk portfolios or larger M&A deals and if you’re seeing either slowdown in opportunities or a pick up?

Robin Lowe

I don’t think as much to say on the M&A front like most of that’s over. There are some pools out there, as I have mentioned in the past, it’s pretty active last year 2016, there’s still a couple out there this year, but as I’ve said I think that kind of dives down by year-end. There’s a couple of pools that have been out there for a while and all of us or most of us have looked at them, bid on them and I think sellers are just maybe waiting for better pricing. So we’ll be respectful of that. So Ryan this is probably two or three decent sized meaning 1000 to 3000s out there, but that’s about it. It’s really got to be - that’s why we’re stressing this in our comments.

If we catch one of those great; if we catch a 3,000 packages, that’s great, but you can’t build on that. You can’t grow on that. You can’t project on that. So what we’re really trying to do is, as I said at the end of my speech, is build a growth origination franchise that’s what this is about. And he you can grow is he that we’ll win, so that’s what we’re focused on. I mean these pools will come and go. There is always going to be - I think its part of the origination conversation, particularly in our space, the affordable housing space, the 17 million families are out there as you know look a lot more like our business model than other people’s, and so the roll-up of guys with 5 to 50 to 500 is what we’re building. And that’s never going to stop and that’s where this is going to come from. So developing an ability to roll up all these, people say mom and pop, I am not sure that’s a technical term, but rolling up all these smaller operators over and over in every single city we’re in.

That’s where the growth is going to come from. There are 17 million families out there and the lion’s share of, according to Green Street, look like RESI. Then that’s an enormous runway for us to find homes. And so developing those pipes is what this is about. And I’m personally spending with a teammate [indiscernible] we’re spending an enormous amount of time trying to build that origination franchise. And again, as I said earlier, the pilots can’t model them yet, but that’s where the growth is going to come from. Then when you can represent the people, if you have that pipeline, you can represent the people if we raise equities, here’s what we’ll do with that. I think that’s an enormously powerful call.

Ryan Tomasello

Great, that was good color. And then just regarding the REO sales, where have prices been coming in versus where you have those marked? And have you benefited at all from HPI on those assets since conversion from NPL?

George Ellison

Yes, as I said Ryan, you know, I think on average if you take like a 10% haircut for what’s on the balance sheet that that’s roughly what we’ve been experiencing. Obviously, we’re in peak season, right now. I guess we’re getting some benefit from HPI. It’s a little bit difficult to pinpoint whether that’s reasonable or not. But you know we’re basically on track and sort of meeting expectations as far as prices that we’re getting.

Ryan Tomasello

And can you just provide a bit more color on the rent growth that you’ve sited for the period. I mean the 4% while strong seems to be a deceleration from last year and some of the comps that were out there from other public peers.

Robin Lowe

I thought 4% was pretty strong. I mean, I think, there’s some noise in than we talked about this in the past, a lot of the homes that ASPS manages our first time homes coming out of the legacy business. And so, I think, at least in our case we were bumping up rent a little bit higher than MSR. As you remember, MSR was a mature portfolio. I think we shouldn’t get ahead of ourselves here. I think it’s really looking at inflation and what this looks like, what this multifamily look like and what does this look like. So to me the industry can stay at 3%, 4%, 5% and that’s enormously powerful year-over-year. And so maybe there were some, some I think we might have printed some 6s, some 7s, maybe even 10 one time. I want to be perfectly transparent. I don’t think that.

And I think when we said that, we actually said don’t get used to this kind of a level. This isn’t going to last. And so, when you put the two together, the ASPS is maturing. So their bumps will start to smooth out and MSR has been pretty flat two, three, four. But I think if you look across the country, the dynamics as I was talking about in your last question, when you look across the rentals in this country, rental homes, the projected growth is in a - we’re still in a very bullish cycle for pushing rents. I mean we’ve got to be thoughtful about it. It obviously can bite you on occupancy. So it’s an art form, not a science, but I think in my opinion - and I think most participants would agree. I think we have another couple of years of this product being able to get outsized vis-à-vis inflation increases.

Ryan Tomasello

Great, thanks for taking the follow-up questions guys.

Robin Lowe

Thanks, Ryan.

Operator

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to the company for closing remarks.

George Ellison

Thanks for joining our call and have a great day. Thank you.

Operator

Ladies and gentlemen, thank you for your patience in today’s conference. This concludes the program. You may now disconnect.